Supply, Demand, and Pricing Strategies in Business

Factors Affecting Supply

Costs in Supplying Goods to the Market

• Price of raw materials
• Wage rates

Improvements in Technology

Makes it cheaper to produce goods.

Taxes and Subsidies

Higher taxes mean higher costs.

Climate (for Agricultural Products)

Supply of crops depends on weather.

Impact of Supply on Market Price and Sales

If supply falls, the market price will rise, sales will fall, and the supply curve will shift to the left. If supply rises, the market price will fall, sales will rise, and the supply curve will shift to the right.

Elasticity of Supply

Elasticity of supply measures how easily and quickly supply can change when prices change. This depends on how quickly products can be produced and supplied, which is often slow for agricultural products.

A product with an elastic supply curve will have a higher percentage change in supply than the change in price. A product with an inelastic supply curve will have a lower percentage change in supply than the change in price.

Pricing Strategies

A recognizable product often benefits from a brand name and a suitable pricing strategy to enhance its brand image. Here are some common strategies:

Cost-Plus Pricing

Cost-plus pricing involves covering all costs and adding a percentage mark-up for profit.

• Advantage: Easy to apply.
• Disadvantage: Potential loss of sales if the price is higher than competitors' prices.

Penetration Pricing

Penetration pricing is used to enter a new market with a price lower than competitors' prices.

• Advantage: Ensures sales when a product enters a market.
• Disadvantage: Low prices lead to low sales revenue initially.

Price Skimming

High prices are used for new products, often due to novelty, high development costs, or high quality. It can also enhance the brand image.

• Advantage: Establishes a product as high quality.
• Disadvantage: May deter potential customers due to high price.

Competitive Pricing

Competitive pricing involves setting prices similar to or lower than competitors' prices.

• Advantage: High sales due to realistic pricing.
• Disadvantage: Requires research on competitors' prices, which costs time and money.

Promotional Pricing

Promotional pricing involves temporarily lowering prices.

• Advantages: Helps clear unwanted stock and renews interest in a product.
• Disadvantage: Lower sales revenue during the promotion.

Psychological Pricing

Psychological pricing influences consumers' perception of a product through tactics like:

• High prices to create a status symbol.
• Pricing just below a whole number to create an impression of lower cost.
• Low prices on daily necessities in supermarkets to give an impression of value.